Australian Taxation Law Case Study

This assignment examines Australian tax law principles through a case study involving Mr. and Mrs. Smith who relocate from Australia to New Zealand. It explores concepts like residency status, capital gains tax (CGT) on asset sales, and relevant sections of the Income Tax Assessment Act 1997. Students must analyze the Smiths' situation and determine their Australian tax liabilities based on the sale of assets.

Running head: TAXATION LAWS
Taxation Laws
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question A:................................................................................................................2
Answer to question B:................................................................................................................3
Answer to question C:................................................................................................................5
Answer to question D:................................................................................................................6
Answer to question E:................................................................................................................7
Answer to question F:................................................................................................................8
Answer to question G:................................................................................................................9
Reference List:.........................................................................................................................11

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Answer to question A:

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Answer to question B:
Issue:
The present issue is concerned with the determination of methods to be adopted for
valuing the trading stock related to income tax purpose.
Laws:
1. Section 70-40
2. Sub-division of 328-E
Application:
As evident from the present case study it can be stated that the taxpayer in the present
circumstances make the use of absorption costing in order to value the trading stock at cost
for the purpose of income tax. In respect of the absorption costing, the cost that can be

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absorbed relating to the income tax will be able to account for the cost involved in purchase
along with the direct and the indirect expenditure that has been incurred by the taxpayer
concerning the inventory (Barkoczy, 2016).
As defined under the “section 70-40” it is necessary to value the trading stock at the
beginning of the income year. The amount inventory that is in hand for the trading stock at
the beginning of the income year reflects the same amount which is considered in respect to
the “sub-division 328-E” upon the conclusion of the income year (Braithwaite, 2017). As
evident in the present case study of EEG, it is recommended that valuation of the trading
stock of inventory can be performed with the help of working out the cost at market selling
value of the inventory upon the conclusion of the year in which income is derived. It will be
beneficial in disregarding the sum relating to the input tax credit for which EEG is entitled at
the time of acquisition relating to the creditable purpose.
In addition to this, it is further recommended that EEG must take in to the account at
the beginning of the income year and EEG can subtract the exceeding sum of value at the
beginning of the income year over the sum upon the conclusion of the year in which income
is derived (Cao et al., 2015). The stock that has been ordered from Malaysia must be
accounted under the absorption method of costing since this will assist in including the cost
of purchase along with the direct and indirect cost that has been occurred concerning the
trading stock to its current location.
Conclusion:
Hence, it can be concluded that the trading stock must be valued under the method of
absorption costing, as this will help EEG in calcimining input tax credit.

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Answer to question C:
Issue
The current issue is based on the determination of whether the writing off the debt can
be regarded as the allowable deductions.
Laws:
1. “section 63”
2. “Crane Sales Pty Ltd v F C of T (1971)”
3. “Anderson and Halstead Ltd v. Birrell (1932)”,
4. “Subsection 705-70 (1)”
Application:
The bad debt must be written off in the year in which the income is derived before
considering the bad debt deductions will be considered as the allowable deductions under
section 63. The judgement passed in the case of “Crane Sales Pty Ltd v F C of T (1971)” a
debt will be viewed as the bad debt where the amount cannot be recovered or in
circumstances where and individual taxpayer has equitable entitlement to the debt (Saad,
2014). In the current context of EEG bad debt written off would be allowed as the allowable
deductions for income tax purpose.
In addition to this, it can be stated that provision for bad debt would not be treated as
the allowable deductions. To consider the provision as the allowable deductions the bad debt
must be more than simply doubtful. Furthermore, there are certain conditions that requires to
be fulfilled. As held in the case of “Anderson and Halstead Ltd v. Birrell (1932)” no
claims relating to provision for doubtful debt would be considered as allowable deductions

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(Lang, 2014). As evident in the current scenario of EEG provision for bad debt cannot be
regarded as the merely bad just because the time has passed with being the payment received.
On the other hand, the employee yearly leave is regarded as the accounting liability
cannot be regarded as the allowable deductions in the year in which it accrues. In regard to
“Subsection 705-70 (1)” employee annual leave is an accounting liability and would not be
allowed for allowable deductions (Miller & Oats, 2016).
Conclusion:
The analysis can be concluded by stating that bad debt written off would qualify as
deductions but the provision for bad debt and employee annual leave cannot be claimed as
allowable deductions.
Answer to question D:
Issue:
The present issue is based on the disposal of capital asset and the determination of
GST under the new tax system of GST Act 1999.
Laws:
1. “Goods and Service Tax Act 1999”
Application:
Capital asset is viewed as that asset that is retained by a commercial entity for
generating income. As defined by the Australian taxation office, a person transferring or
selling the capital asset with registered business or required to be registered for the purpose of
GST it would be treated as the assessable sale and the individual taxpayer is required to

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record the GST relating to the sale (Woellner et al., 2016). As evident in the current situation
of EEG, an assertion can be bought forward that the sum that is generated from the sale of the
asset would be regarded as the assessable sale of capital asset that will be liable for GST
under the new tax system of “Goods and Service Tax Act 1999”. In addition to this, EEG
will be additionally required to account for the sum received in business activity statement for
the current tax year.
Conclusion:
The discussion conducted above can be concluded by stating that sale of capital asset
by EEG would be taxable under the “GST Act of 1999”.
Answer to question E:
Issue:
The present issue is based on the determination of the fringe benefit of loan made to
an associate or an employee under the Fringe Benefit Act 1986.
Laws:
1. “Fringe Benefit Tax Assessment Act 1986”
2. “Division 7 A”
Application:
Any form of loan made to the associate as the employee or an associate that is an
employee of the private company would result in fringe benefit tax given the fact that such
kind of loan is in compliance with the complying loan. Nevertheless, loans are generally not
subjected to Division 7A and will be treated as the loan fringe benefit under the “Fringe
Benefit Tax Assessment Act 1986” (Robin, 2017). The loan undertaken by Mrs Smith in the

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current scenario it can be stated that loan Fringe Benefit is applicable under the “Fringe
Benefit Tax Assessment Act 1986”.
In contrary to the situation, it has been noticed that motor vehicle was also sold by
Mrs Smith that can be regarded as the selling of capital asset that was held for the purpose of
long term investment to derive revenue. The disposal of motor vehicle is a capital asset and
would be treated as the taxable sale under the GST supplies that is derived during sale.
Conclusion:
The above stated analysis can be concluded by stating the loan taken by Mrs Smith
will be treated as Fringe benefit and will be liable for tax. Additionally, sale of capital asset
would be treated as GST supplies.
Answer to question F:
Issue:
The present issue is based on the determination of Capital gains for the sale of
property in Australia by the taxpayer.
Laws:
1. “Section 108-10 of the Income Tax Assessment Act 1997”
Application:
A person leaving Australia permanently and disposing off the asset would be
considered for tax under the “Section 108-10 of the Income Tax Assessment Act 1997”
(Barkoczy et al., 2016). This evidently puts forward that a person selling off their asset would
be held liable for taxation purpose under the “Section 108-10 of the Income Tax
Assessment Act 1997”for the capital gains made. In addition to this, an individual is required
to account for the sum derived as the capital gains or loss in the taxable return and pay tax on

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their assessable gains (Roe, 2017). In respect of the current situation of Mr and Mrs Smith
they would be treated as the foreign resident for leaving Australian and shifting to New
Zealand. This would ultimately result in cessation of their Australian resident and the sale of
asset made by them would be treated as the capital gains which would be liable for
assessment under “Section 108-10 of the Income Tax Assessment Act 1997”.
Conclusion:
It can be concluded that both Mr and Mrs would not be treated as the Australian
resident since they moved to New Zealand permanently and the sale of asset would be held
liable for taxation purpose.
Answer to question G:
Issue:
The present issue is based on the determination of the capital gains or losses from the
sale of shares.
Laws:
“Section 110-20 of the ITAA 1997”
Application:
As defined by the Australian taxation office, an individual taxpayer selling capital
asset and deriving gains from such would be treated for assessment for the gains derived
(Tran-Nam & Walpole, 2016). The sale of shares in this context by Mr Smith represents
capital gains and would be treated for basement under “Section 110-20 of the ITAA 1997”.
Conclusion:

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In compliance with “Section 110-20 of the ITAA 1997”, Mr Smith would be liable
for tax on the capital gains made from the sale of shares.

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Reference List:
Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K., & Richardson, G. (2016). Foundations Student Tax
Pack 3 2016. Oxford University Press Australia & New Zealand.
Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ... & Wende, S.
(2015). Understanding the economy-wide efficiency and incidence of major
Australian taxes. Treasury WP, 1.
Lang, M. (2014). Introduction to the law of double taxation conventions. Linde Verlag
GmbH.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
ROBIN, H. (2017). AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Roe, A. (2017). The doctrine of sham in Australian taxation law. AUSTRALIAN TAX
REVIEW, 46(2), 99-119.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Tran-Nam, B., & Walpole, M. (2016). Tax disputes, litigation costs and access to tax
justice. eJournal of Tax Research, 14(2), 319.
Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian
Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.

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